How Marc Rich Made A Fortune Getting Around Sanctions And Trading With Shadiest Characters In The World

It is well know that Marc Rich, the late billionaire commodities
fugitive and American exile, managed to trade with some of the
most unsavory leaders in the world despite U.S. sanctions.

He died this morning, but in the 1970s (his heyday) he
circumvented a ban on trading with Iran and managed to supply oil
to Apartheid South Africa. He also found a way around Ronald
Reagan's directive to stop trading with Muammar al-Qaddafi's
Libya. The question is how?

The answer is complicated — think shell companies on paper and
fixers on the ground. Think bribes.

Foreign Policy Magazine did an awesome profile of Glencore
(as Rich's company, Marc Rich $ Co. AG, was renamed after he
left) last year. It touches on how Rich did business in the bad
old days before the company went public.

An inveterate sanctions-buster, Rich used offshore front
companies and corporate cutouts to try to stay below the
radar. He also pioneered the practice of commodity
swaps, like the uranium-for-oil deals he brokered in the 1980s
between apartheid South Africa and Islamic Iran and Soviet
Russia...

This is the heart of the Marc Rich formula: Access is
money, and contacts on the ground mean access. The new Glencore,
like the old one, relies on a network of fixers, middlemen, and
business partners who might make other companies
squeamish, among them the Uzbek-born oligarch Michael Cherney,
now living in Israel and wanted by Interpol on a Spanish warrant
connected to organized crime charges and with whom Glencore
traded oil (through an offshore vehicle affiliated with Cherney)
in Romania in the mid-2000s... In Congo-Brazzaville, to
take another example, Glencore bought oil from shell companies
set up by the state oil company's head, Denis Gokana
(conveniently trained at its London office), according to a
lawsuit by Kensington International, a Cayman Islands-based
corporation.

When President Jimmy Carter put sanctions on Iran in 1979, for
example, Rich was ready. A business associate immediate went to
Iran to greet Ayatollah Khomeini, writer Daniel Amman said in his
book detailing the deal,
'The King of Oil.

Khomeini and his lesser ayatollahs decided to respect the
agreements made by the deposed Shah and so Rich was able to
continue his work in Iran.

In an ABC interview with Amman he said, "We performed a service
for them...We bought the oil, we handled the transport, and we
sold it. They couldn't do it themselves, so we were able to do
it."

Naturally, someone must be on the other side of any trade. In
this case Rich was selling Iranian oil to Apartheid South Africa
(getting around an embargo) and Israel (getting around an ancient
feud).

More from the Amman interview: "They didn't care," Rich told
me. "The professionals in the oil business in Iran didn't care.
They just wanted to sell oil."

And sell they did, in part, using the
spot market, which Rich himself perfected in the Middle East
during the early 1970s. Essentially, instead of
having a long-term contract with a buyer or seller, Rich would
execute one-off trades through a thick layer of shell companies.

So not necessarily the kind of thing you can trade from your
basement.